After a meteoric rise of more than 700% in 2020, Tesla’s stock value has taken a dive and the company has suddenly entered a bear market. Indeed, just two months after speculation over the electric car company’s addition to the S&P 500 made Elon Musk the richest man on Earth, briefly overtaking fellow centibillionaire Jeff Bezos of Amazon, Tesla’s shares have dropped a whopping 22% since their record close, turning the company negative for the year. Most recently, Tesla’s stock prices dropped 6% in a single day, the company’s largest single-day loss in half a year.
At a time when the EV revolution is just starting to explode, electric car company stocks are hotter than hot, and investors are making big bets on clean energy tech in general, what caused this huge drop in Tesla’s share values? According to some analysts, the answer involves another buzzworthy boom-and-bust commercial entity: the cryptocurrency giant Bitcoin.
“This pullback really started after Tesla made the decision to buy $1.5 billion of bitcoin,” New York-based investment research firm CFRA’s Garrett Nelson was quoted by MarketWatch. “Although Tesla used a relatively small percentage of their overall cash to make the purchase, it has investors questioning its future growth strategy.”
Earlier this month, in an official filing with the Securities and Exchange Commission, Tesla stated that the company made its massive bitcoin purchase for “more flexibility to further diversify and maximize returns on our cash.” Musk’s company has also said that they plan to accept bitcoin as payment in the very near future, in a move that would make them the very first major automaker to accept the divisive cryptocurrency. “The moves raise questions around CEO Elon Musk’s recent behavior on Twitter, where he has been credited for increasing the prices of cryptocurrencies like bitcoin and dogecoin by posting positive messages that have encouraged more people to buy the digital currencies,” CNBC reported in February.
Initially, the move paid off–to the tune of about $1 billion in paper profits according to Wedbush Securities analyst Daniel Ives. Now, however, Tesla’s involvement with bitcoin has taken a turn for the worse. According to analysts, the EV company’s shares are now married to the value of bitcoin, and both have taken quite a dive in recent days. “Musk is now tied to the bitcoin story in the eyes of the Street and although Tesla made a billion paper profit in its first month owning the digital gold, it comes with added risk, as seen this week,” Ives was quoted by CNBC on Tuesday.
Indeed, Elon Musk’s net worth plummeted by a whopping $30 billion overnight, making the company’s initial $1 billion in paper profits from the bitcoin purchase look like a paltry sum. The second-richest man on earth’s net worth now stands at $169 billion, while Tesla stocks are trading at $697. Adding insult to crypto-injury, the company’s falling out of favor with traders was catalyzed by the disappointing $24 billion valuation of market newcomer Lucid Motors, which cast a pall over the entire EV sector, according to reporting by MarketWatch.
While a bear market is never good news, the company’s 22% drop is a drop in the bucket compared to the more-than 700% gain Tesla showed last year, and the company’s market volatility is likely far from over. Especially if Tesla’s valuation continues to be directly tied to the similarly turbulent price of bitcoin. And while analyst Ives has remarked on the risks of this unofficial marriage, he still believes that the bitcoin buy-in was a “smart move at the right time for Tesla.” And let’s be honest, taking into account the suddenness and swiftness of Tesla’s past market volatility, at the same time that this goes to press Musk could already be laughing all the way to the bank.